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Hah Logistics, Versus Deputy Commissioner of Income Tax New Delhi.

2011 (11) TMI 682 - ITAT DELHI

TDS u/s 194C - Disallowance u/s 40(a)(ia) - non tds on direct expenses include the freight paid - Held that:- As the present assessee, who is carrying on the business of clearing and forwarding agents, is not a person responsible for deducting the tax at source in terms of sec. 194C of the Act in as much as the assessee is only an intermediary between the exporters and the shipping lines and it merely facilitates the contract for carrying the goods. Since the assessee was not a person responsibl .....

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te the disallowance made u/s 40(a)(ia) of the Act by the AO. - Decided in favour of assessee. - ITA No. 1864/Del/2011 - Dated:- 4-11-2011 - SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI K.G. BANSAL, ACCOUNTANT MEMBER For the Appellant: Sh. Ved Jain, Ms. Rano Jain, Sh. Venketesh Chomania, CA s For the Respondent: Sh. Mohanish Verma, CIT(DR) ORDER PER C.L. SETHI, J.M. The Assessee is in appeal against the order dated 25.03.2011 passed by the ld. CIT(A) for the A.Y. 2008-09. 2. Ground no. 1 & 2 r .....

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cted for scrutiny and notices u/s 143(2)/142(1) were issued and served upon the assessee. 5. During the course of assessment proceedings, it was noticed by the AO that the assessee had declared gross receipts of ₹ 3,33,44,575/- against which the direct expenses were claimed at ₹ 3,08,91,654/. The direct expenses include the freight paid to the various parties. The AO required the assessee to furnish the details of freight paid, and reconciliation for the expenses shown under the head .....

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ticulars Amount TDS Deducted 1. Maersk Logistics, Mum. 50,23,655/- 0 2. Atlas Shipping Services 13,59,551/- 0 3. UPS Mumbai 3,09,805/- 0 4. Zeus Air Services 6,65,750/- 0 5. Jeena & Co., Delhi 7,44,187/- 0 6. ULA+TAI Pan 71,83,610/- 0 7. Associated Container Line 4,70,884/- 0 8. APL Logistics, Delhi 2,14,030/- 0 9. Suni Trans Mumbai 56,312/- 0 10. Maersk Logistics, Delhi 22,40,352/- 0 11. CDS Overseas Logistics 1,48,737/- 0 12. Expenditors, Mumbai 3,55,666/- 0 13. SDV Air Links 4,89,525/- 0 .....

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40(a)(ia) of the Act vide ordersheet entry dated 25.10.2010 and asked the assessee to show cause as to why the amount paid should not be disallowed as deduction for not deducting the tax at source from the payments. In reply to the AO s query, the assessee submitted a letter dated 12.11.2010 stating therein that the payments made to the shipping line are not in the nature of payment towards any work contemplated u/s 194C of the Act. The assessee explained before the AO that the payment made to t .....

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ade these payments on behalf of its client and got the same reimbursed by raising invoice to its clients on which appropriate TDS has been deducted by the client of the assessee. However, the assessee s explanation was not found acceptable to the AO. The AO had taken a view that the assessee was required to deduct tax at source u/s 194C of the Act and since no tax was deducted at source, the payments made by the assessee could not be allowed as deduction u/s 40(a)(ia) of the Act. The AO s findin .....

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arges of the assessee of different natures. The assessee received the payment against the bills from the clients and made further payments to the parties responsible for dispatching the goods through shipping lines. This issue has been clarified by the CBDT vide circular No. 715 dated 08/08/1995 that sec. 194C referred to any sum [paid, obviously, reimbursement of actual expenses cannot be deducted out of the bills amount for the purpose of Tax Deduction at Source. Therefore, the contention of t .....

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ssessee preferred an appeal before the ld. CIT(A). 8. After considering the AO s order and the facts of the case, the ld. CIT(A) decided the issue against the assessee by observing and holding as under: - 4. I have carefully considered the facts of the case and the AO s findings. As per first para of the page 03 of the impugned order, it is evident that 22 persons as detailed on page 02 of the impugned order have not raised any bill to the appellant though it has made payments of ₹ 2,04,72 .....

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e appellant was existing in between the service provider and its clients, (ii) why payers (appellant s clients) have not made direct payments to the service providers (22 persons as mentioned above) when bills are raised in their names, (iii) in case the appellant has not received any bill from the above mentioned 22 persons then where is the question of reimbursement, (iv) why payers (appellant s clients) have done TDS on reimbursement, (v) in case bill is raised to the payers (appellant s clie .....

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ts entered between payers (appellant s clients) and the service providers then the payment made by the appellant fall in purview of the provisions of sec. 40(a)(ia) of the Act as these payments made by the assessee are under contractual obligations. Thus, the AO s action is held justified. Further, the appellant failed to explain and establish the business purposes of the appellant got served by making the payments of ₹ 2,04,72,855/-. Thus, alternatively also, the payments are not allowabl .....

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clearing and forwarding, and in the course of carrying on such business of clearing and forwarding, the assessee made payments to shipping companies for and on behalf of its clients, which were reimbursed later by assessee s client on actual basis. It was thus, contended by the ld. Counsel for the assessee that there was no expenses incurred by the assessee on account of payment made to various shipping companies/freight forwards and thus, there was no question of disallowance u/s 40(a)(ia) of t .....

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. The maximum charges as payable to shipping lines in this regard are fixed by port authorities. The shipping companies cannot charge more than the rates as given by port authorities. 11. The ld. Counsel for the assessee further submitted that there was no contract between the shipping lines and the assessee firm in the nature of a work specified in sec. 194C of the Act. He further clarified that the bills for specified services were raised by shipping lines in the name of the ultimate consumer .....

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ntion to some copies of the bills raised by shipping lines/freight forwards and also copies of bills raised by the assessee firm to its clients in this regard, which were also furnished to the Assessing Officer vide letter dated 12.11.10. A copy of orders of port authorities has also been furnished. It was thus, submitted by the ld. Counsel for the assessee that there was no requirement to deduct tax at source by the assessee intermediary from the payments made to shipping lines for and on behal .....

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t. 12. The ld. Departmental Representative on the other hand, supported the orders of the authorities below and submitted that as per the provisions of sec. 194C of the Act, the assessee was required to deduct tax at source even if the expenses incurred by the assessee were reimbursed by the assessee s client. 13. The rival contentions of both the parties have been considered and orders of the authorities below have been perused. We have also gone through the various papers and documents contain .....

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r were initially paid by the assessee, and thereafter the assessee got reimbursed the said amount from its client including the charges of the assessee for services rendered. We have perused the various bills raised by various shipping companies and find that the shipping companies raised their bills on the ultimate customer, who is the exporter or importer of the goods. The assessee used to raise bills upon exporter or importer i.e. assessee s client, including the charges payable to shipping l .....

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and nature of the assessee s business of clearing and forwarding agents, we find that the assessee is nothing but an intermediary between the exporters and the shipping lines. The assessee facilitates the contract for carrying goods for and on behalf of its client i.e. exporters or importers, and the principle contract for carrying goods is between the exporter/importer and the shipping lines. An identical issue has been considered by the Hon ble High Court of Delhi in the case of Commissioner .....

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